The Peterson Institute for International Economics is a private, nonprofit, nonpartisan
research institution devoted to the study of international economic policy. More › ›

Keep up to date with Peterson Institute publications, events, and interviews via email, podcast, or RSS. More information on subscription options.

Use filters to narrow your search through our publications and events.

translate

print
cite this

Web Site Citations

MLA Style:

Cline, William R. & John Williamson. Policy Brief 10-15: Estimates of Fundamental Equilibrium Exchange Rates, May 2010. Peterson Institute for International Economics, 1 June 2010. Web. 1 June 2010. <http://piie.com/publications/interstitial.cfm?ResearchID=1596>.

APA Style:

Cline, W. R. & Williamson, J. (2010). Policy Brief 10-15: Estimates of Fundamental Equilibrium Exchange Rates, May 2010. Retrieved June 1, 2010, from Peterson Institute for International Economics, Washington, DC. Web site: http://piie.com/publications/interstitial.cfm?ResearchID=1596.

CBE/CSE Style:

Cline W R & Williamson J. 2010 [cited 2010 Jun 1].Policy Brief 10-15: Estimates of Fundamental Equilibrium Exchange Rates, May 2010. [Internet]. Washington, DC: Peterson Institute for International Economics. Available from: http://piie.com/publications/interstitial.cfm?ResearchID=1596.

Chicago Style:

Bibliography (Notes and Bibliography System):

Cline, William R., and John Williamson. "Policy Brief 10-15: Estimates of Fundamental Equilibrium Exchange Rates, May 2010." Peterson Institute for International Economics. http://piie.com/publications/interstitial.cfm?ResearchID=1596 (accessed 1, 2010).

References List (Author-Date System):

Cline, William R., and John Williamson. Policy Brief 10-15: Estimates of Fundamental Equilibrium Exchange Rates, May 2010. Peterson Institute for International Economics. http://piie.com/publications/interstitial.cfm?ResearchID=1596 (accessed 1, 2010).

email page
send comments

Policy Brief 10-15

Estimates of Fundamental Equilibrium Exchange Rates, May 2010

by William R. Cline, Peterson Institute for International Economics
and John Williamson, Peterson Institute for International Economics

June 2010

This policy brief updates Cline and Williamson's estimates of fundamental equilibrium exchange rates (FEERs) to May 2010 using the data to March contained in the April issue of the International Monetary Fund's World Economic Outlook. The IMF's data are updated to May by subsequent exchange rate changes and Cline's estimates of the impact of exchange rate changes on trade flows. In addition, the assumptions about current account targets have been somewhat modified from previous years: All countries are now assumed to aim to keep current account balances within 3 percent of equilibrium, whereas formerly some countries with large net foreign assets to GDP ratios (NFA/GDP) were allowed larger targeted imbalances. The fundamental question explored is what pattern of exchange rates is consistent with satisfactory medium-term evolution of the world economy, interpreted as achieving those objectives while maintaining internal balance in each country.

The big disequilibrium in the pattern of exchange rates remains the undervaluation of the renminbi and the overvaluation of the dollar. The size of this disequilibrium is, however, less than previously estimated (now 15 percent on an effective basis and 24 percent bilaterally with respect to the dollar), due to the decline in the IMF's estimate of China's prospective current account surplus. The recent depreciation of the euro, while increasing the size of Euroland's prospective surplus, does not threaten to lead to an internationally unacceptable imbalance (i.e., greater than 3 percent of GDP) and therefore does not create a case for international action to reverse the rise. The yen is no longer found to be overvalued on an effective basis, although if China revalued that would create a case for a stronger yen/dollar rate. Several of the other East Asian currencies would also need to appreciate bilaterally to avoid effective undervaluation. Of the 28 other economies covered, Hong Kong, Malaysia, Singapore, Sweden, Switzerland, and Taiwan are judged to need an effective appreciation and Australia, Brazil, New Zealand, South Africa, and Turkey to need an effective depreciation.

View full document [pdf]

RELATED INTERVIEWS

subscribe

Follow us

translate

Policy Brief 10-15

Estimates of Fundamental Equilibrium Exchange Rates, May 2010